Paul's Wall June 11, 2012

Hooray for Germany and Schleswig-Holstein! Germany has 16 states ("Lander"), all of which have at least somewhat harmonized with similar gaming regulatory laws, along with laws restricting the operation of internet gaming and even the distribution of lottery products over the internet. Except that one state, Schleswig-Holstein, had been preparing to break from that nationally harmonized system and intending to license multiple i-gambling operators. While it would please the community of remote i-gambling operators for one German state to legalize forms of gambling and distribution that are not legal in the other 15 states, it would be highly disruptive of the German gaming and lottery industry. Fortunately, Schleswig-Holstein is now considering reversing that process and working with the other German states to come up with a system that would make more sense for the whole country. (See the accompanying story.) You know the likelihood of this happening is very real when commercial companies start to threaten their customers with lawsuits. Mathias Dahms, CEO of mybet Holding states that the operator would “continue to expand” its German business on the basis of its licence approval last month. Moreover, he posits that the regulatory changes being contemplated "would be difficult to enforce legally and would of course imply claims for indemnification” . Good luck on that, Mathias. Let us know how that works out for you.

I know I do get a little emotional when it comes to the battle to preserve the rights of governments to determine the regulatory framework that is most consistent with their own public policy agendas. It's just that it does make me agitated to think that governments could be bullied by these remote i-gambling operators whose goals have nothing to do with the interests of the public. Once they get permission to operate, these remote i-gambling operators move on to fight for lower and lower taxes, and more lenient regulatory constraints, and other self-interested objectives that are contrary to the interests of society. Witness the actions of the big operators formerly based in the UK. When the UK raised taxes (to something like 15%) a few years ago, the operators just moved to Malta and Gibraltar, thinking they could evade the taxes. Then, when the UK Gambling Commission set about the business of enforcing the laws and actually collecting the taxes, these companies had the temerity to complain of unfair treatment. Of course, it is our outspoken advocacy position that governments should move more quickly to regulate and tax the gambling and i-gambling business. But they should not be bullied into some misguided notion that free-market capitalism needs to be applied to the gambling industry with a religious fervour that defies common-sense, and results in a race-to-the-bottom of low tax rates (like Malta which is like 1%!). Literally tens of billions of dollars in profit are at stake and there is no reason why governments everywhere shouldn't think carefully about how those profits might be channelled to help society and public service causes.

In fact, these issues are of such importance that some jurisdictions are letting the people decide for themselves what they want in the way of a regulatory framework. Switzerland put it out it to a general referndum and the people affirmed that they want the industry to continue to support good causes and to be regulated and taxed with that as a fundamental part of the public policy agenda. Now (see accompanying story) Bermuda is putting the decision of how to regulate and tax the industry to a popular vote. Bermuda premier Paula Cox herself actually addressed the House of Assembly stating that “These important issues normally represent seismic shifts in our culture and way of life and, therefore, these are the issues that we need to take directly to our people to hear what they have to say.” Again, PGRI's position is that once the underground, i.e. unregulated and untaxed, gambling industry gets beyond a minimum threshold, it is in the public interest to regulate and tax it. It's just that the guiding principles should not be blind allegiance to free-market capitalism with open markets and competition. It should be a perfectly acceptable public policy position to channel the proceeds of this industry back to benefit the public. As India Justice Mukul Mudgal puts it (see accompanying story), "Regulate betting, don't ban it." It does seem like everyone everywhere is acknowledging that as the only responsible public policy approach.

Nevada is now licensing i-gaming operators. That is good news because we need U.S. states to assert their right to regulate and tax this industry. However, with a population of less than 1% of the U.S., the excitement is not about the Nevada marketplace, it is about the possibility of operating in other states. Hopefully, the states that are pioneering this industry will open the doors for others to follow suit. And, hopefully, when considering the best ways to regulate and tax this industry, states will recognize the tremendous asset they have with their own state lotteries. Lottery operators have all the tools necessary to implement a progressive i-gaming agenda, one that places as its highest priority the protection of the consumer, responsible gaming for the players, and a legacy and skill-set for aligning their operating principles with sound public policy agendas as determined by the representatives of the people as opposed to shareholders of private corporations.

The UK Gambling Commission is turning its sights onto social gaming, and the games on Facebook in particular. What exactly defines the difference between social gaming and gambling for money? "The key question is, is it gambling or not?" said John Travers, the UK Commission’s corporate affairs manager. I would think that the key business strategy would be for lottery operators to move into the social gaming space before the social gaming operators move into our space. As regulations permit of course. The commercial i-gambling operating community (not just in the UK. - Caesars Entertainment, MGM, Bwin, etc. have a global strategy that includes the biggest market in the world, the U.S.), realizes that and is moving at breakneck speed to consolidate its position. Lottery has the inside track to take the lead and should be the ones to merge the juggernaut of social gaming with games of chance.

Check out the Ontario Lottery RFI to modernize the lottery. Its open-ended invitation to propose solutions would seem a good step towards paving a path for the most creative and progressive ideas to be implemented. "By shifting the day-to-day operation of Ontario's lottery system to a regulated private service provider, Ontario lottery players will experience more innovative and entertaining games," said Rod Phillips, OLG President and Chief Executive Officer.

Thank you all for your support. I welcome your feedback, comments, or criticisms. Please feel free to e-mail me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Mark your Calendars (Oct. 22-25) for Lottery Expo 2012 in Miami. Click on www.PublicGaming.org for more info.